Student loan blues got you down? Never fear! A lot of the fear concerning student loans stems from misconceptions that surround them. You can always call your student loan servicer with any questions to help clear up the confusion. In the meantime though, here is a shortlist of common student loan myths.
I Shouldn’t Worry About My Loans Until I Graduate
The truth of the matter is that it can be highly beneficial to start paying off your loans while in school. Many federal loans have a grace period (often around six months after you graduate, drop below half-time student status, or drop out) that is for you to get settled into a job, thereby financially securing yourself. However, interest begins accruing during this period. You will have more interest if you haven’t paid any of your loan off by the end of the grace period. Therefore, making some payments, even small ones, when you are in school can be helpful.
Regardless of whether or not you choose to make payments early, you should keep careful track of your loans. How much do you owe? Are they all from the same source? What are my interest rates? And so on.
I Should Pay My Student Loans Before Everything Else
It depends. You should compare interest rates on your various debts. Even if say, your credit card bill has a smaller amount on it, if it has a higher interest rate you should want to pay that first. It’s all about balance. What can you pay off now? What will make you pay more if you wait? Keeping track of what your interest rates are will help.
Loan Consolidation Is Always Helpful
If you do have loans from multiple sources (less frequent in this day and age), it might seem like a good idea to consolidate them so you only pay one bill per month. When you do that, your loan servicer will take a weighted average of your interest rates – and then round up. So depending on your payment plan, you may actually end up paying more than what you would have if you had kept them separate. In addition to that, some benefits (like loan forgiveness) might disappear. Always ask questions about what the overall effect will be. If it’s more negative, then maybe you should just keep them separate.
I Have To Pay Back My Loans Completely
While this true for many people, it never hurts to see if you qualify for a forgiveness program. The Public Service Loan Forgiveness Program is a good example. If you work full-time at a qualified job in the government, after ten years of successful loan payments your loans can be forgiven. Teacher and Disability Forgiveness is also available, and other types of forgiveness may be coming (depending on our government and who we elect as President).
I Can’t Adjust My Repayment Amount
Definitely false. While everyone’s initial bill is set to the standard ten-year repayment plan, you can adjust that. Graduated, Extended, Income-Based, and Pay-As-You-Earn are all viable options that can decrease the amount you owe each month. When extending how long you plan to take to repay your loans, it’s important to remember that you want to stay ahead of the interest rate. Otherwise, you might end up owing more than when you started!
Federal Student Aid is a great site that lays out the differences between repayment plans.
Student Loans Don’t Affect My Credit Score
Yes, they do. Loans are a form of credit. If you think about it, credit cards are really just short-term loans with high interest rates. As such, missing a payment or paying late will have a negative impact on your credit score. That can affect your eligibility to apply for more loans, new credit cards, and even your ability to rent an apartment or house. The inverse is that making your payments on time will either increase your credit score or at least help to maintain it. And your loans are going to have a larger impact on your score than your credit card will.
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